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am struggling to understand how the effective corparation tax rate is 25%, when dealing with marginal companies.
25% is just a shortcut calculation. (i can’t remember how they work it out)
its the same thing with 24%- marginal relief.when dealing with marginal rate, tax up to the lower limit at 20% then anything remaining above the lower limit tax at 25% this only applies when the main rate of tax is 24%
I agree this makes no sense to me. When deciding on whether to relieve a loss the rules are reduce at highest rate which in the BPP book states relief at marginal rate first but how is this 25%? If anyone could explain I would be grateful!
HI,
suppose
taxable total profit /augmented profit =300000
so a company will be a small
300000*20%
CT liabilty=60000if TTP/ AP = 310,000
so a company will be medium
310,000*24%= 74,400
less; 1/100 ( 1500,000-310,000)= 11,900
ct liabilty=62500
thus change in liabilty=2500
change in profit = 10,000
change in terms of percentage = 2500/10,000 ) *100=25%ALTERNATIVE APPROACH : ( should not be used to calculate ct liability for a medium company its just a cross check for my above mentioned calculations)
thus for medium company taking the profit as per above example i.e 310,000
300,000 *20% = 60,000 ( applying a small company rate )
10,000*25%=2500
so total = 62500
but do not use the alternative approach for calculating ct liabilty for medium company in exam!!!!!!!!!
USE THE PROPER METHOD 🙂
if u r confused leave it as it is not important at all………………and all what u should know is that the marginal rate is 25%
hope it helps
KIND REGARDSwhat happened to the “N/A” part of the marginal relief formula in your example?
i thought it was – 1/100 x (U-A) x N/A
you have only used 1/100 x (U-A)Thanks.
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